Get cash in hand and keep the security deposit approach as a backup to protect those funds for any damage caused.Court would be my last resort. 

@Michael Ealyb Phenomenal deal structure and philosophical approach to real estate investing.

Second, if so, does the group have any guidance or advice on how to approach the lender?

Developing that trust with someone you don't know may seem like a challenge, but if you approach it correctly, you should be able to achieve a pretty solid foundation of trust.The best way is to talk to others who have had an experience investing with the sponsor already.

He said if this guy manages to find a buyer, when he approaches us we'll squeeze him in the middle and make him overpay to close the deal.

So what I wanted to know is how should I approach the listing agent and negotiations?

They are the key holder.I suggest speaking with a lender and getting a clear idea of what you qualify for and what the best approach moving forward is. 

Very approachable price points and small consistent returns every month aren't something to overlook! 

Should investing be a different approach ?

If that approach does not work, I am not sure if I can pursue a normal foreclosure procedure with notifications to heirs or need to do something different.